Europe 2020 in the United Kingdom

The Country-specific Recommendations are documents prepared by the European Commission for each country, analysing its economic situation and providing recommendations on measures it should adopt over the coming 18 months. They are tailored to the particular issues the Member State is facing and cover a broad range of topics: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, etc. The final adoption of Country-specific Recommendations prepared by the Commission is done at the highest level by national leaders in the European Council.

In the last year, the UK government has made significant progress in designing and legislating for an extensive reform agenda in financial regulation, spatial planning, education and welfare. The reforms are relevant and ambitious in their stated aims, but in most cases, it is not yet fully clear how effective they will be. Indicators on housing, access to finance and infrastructure have been either stagnant or deteriorating, linked in large part to the challenging economic environment.

In the short to medium term, the UK faces considerable challenges and tensions in reconciling needs for deleveraging, maintaining financial stability and avoiding compromising investment and growth. Fiscal consolidation remains a pressing challenge for the UK, and needs to be balanced with fairness and growth-promoting investment. To provide the conditions for sustainable, investment- and export-led growth, the UK also needs to address the economy’s structural weaknesses, including a lack of housing supply, skills gaps, and the need to renew and upgrade transport and energy infrastructure. These and other shortcomings also contribute to the UK's consistently weak net export position. The current account deficit grew to 3.7% of GDP in 2012 and the UK has a large goods trade deficit (-6.9% of GDP).

The Commission has issued six country specific recommendations (CSRs) to the UK to help it improve its economic performance. These are in the areas of:

Sustainable public finances

The UK has very high levels of government debt and a large fiscal deficit. To get public finances back on a sustainable footing, the UK should continue to prioritise the reduction of its debt and deficit, whilst balancing this with targeted growth-enhancing expenditure.

The housing market

The level of household debt in the UK is well above the euro area average. A housing shortage and lack of residential construction is also contributing to keeping house prices high. The UK should take measures to increase the housing supply and strengthen the rental market, whilst avoiding a return to imprudent mortgage lending.

Youth unemployment reform

Youth unemployment is over 2.5 times greater than the overall unemployment rate in the UK. The UK should improve the quality of vocational training on offer and reduce the number of young people without sufficient skills to enter the labour market.

Support to low income households

The UK has the second highest percentage of people living in households with a very low work intensity in the EU. The UK should ensure its tax-benefit system is both fair and offers clear work incentives. To allow more women, who wish to, to take up full-time work, the UK should improve the affordability and quality of childcare provision.

Access to finance for businesses

The UK is one of the most difficult countries in the EU for businesses to obtain bank credit, according to SMEs. The UK should take measures to encourage banks to lend to businesses, whilst avoiding excessive risk taking.

Investment in infrastructure

The UK needs to invest in its energy and transport infrastructure if it is to continue to meet the needs of the rest of the economy over the coming decade. In terms of contribution from renewable energy sources the UK is ranked 25th out of the 27 Member States in the EU and should make significant improvements when upgrading its energy infrastructure. With regard to transport, there is a significant gap between the investment needed to improve transport infrastructure and finances committed. The UK should look to provide greater certainty in investment from both public and private sources.